By Paul Sandle
LONDON (Reuters) - European pay-TV group Sky plans to introduce a loyalty scheme to stem a rise in customer defections that, together with a jump in the cost of soccer broadcasting rights, cast a shadow over first-half results on Thursday.
The company, which has accepted a buyout offer from Rupert Murdoch's Twenty-First Century Fox, reported a 9 percent drop in first-half operating profit and said that the customer churn rate in its biggest market, Britain, rose to 11.6 percent from 10.2 percent a year earlier.
Chief Executive Jeremy Darroch said that Sky needs to do "a better job across the board" to hold on to customers, adding that British customers who had taken its services for a number of years would be offered package upgrades and other benefits, replicating a loyalty programme it has in Italy.
On the soccer front, Sky is paying 70 percent more to broadcast matches from Britain's Premier League this season, having beaten BT Group (LON:BT) to the biggest packages of matches with a 4.2 billion pound three-year deal.
The two rivals are set to go head to head again in March over rights for the UEFA Champions League, currently held by BT, which was rocked this week by an Italian accounting scandal that wiped 20 percent of the value of its shares and has raised doubts over its ability to spend more to keep the matches.
Darroch said that BT's woes did not change his strategy towards the forthcoming auction.
"We go into all the rights renewals this year in a good place, he told reporters. "We have good optionality around where we spend our money. We'll spend where we see value; we are good at assessing that."
INTERNET TV SERVICE
Darroch also said that the company will offer its full Sky TV service in Britain over the Internet this year without the need for a satellite dish, targeting customers who don't want or can't install a dish.
Sky already offers sport, movies and entertainment on its Now TV internet service, which competes with Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN).com.
The broadcaster, which will screen a new season of "Game of Thrones" this year, reported operating profit of 679 million pounds, slightly below analysts' forecasts, having absorbed additional Premier League costs of 314 million pounds.
Revenue rose 6 percent on a constant currency basis to 6.4 billion pounds as it added more than 500,000 new customers across operations in Britain, Ireland, Italy and Germany.
Shares in the company, which are underpinned by the 10.75 pound buyout offer from Murdoch's Fox, were little changed at 10.05 pounds at 1237 GMT.
Citi described the results as "solid", but the Fox approach remained centre stage.
"If Sky were not in a bid situation, the focus today would be on the 'higher than planned' UK churn," the bank said.
Fox agreed a $14.6 billion deal in December to buy the 61 percent of Sky it does not already own.
The deal requires regulatory approval in Europe and Britain as well as the backing of Sky shareholders before Fox fulfils its long-held ambition to control the business.
Darroch declined to comment further on the bid.
Sky is also in a dispute with content provider Discovery Communications over carriage fees, which threatens a blackout of Discovery's channels from the platform.
Darroch said that Discovery's channels were attracting fewer viewers and its shows were not a big draw for customers choosing on-demand programming.
"We'll spend where our customers see value," he said.